You probably chose an LLC business structure because of the tax and liability advantages, but your LLC won’t help you if it’s too weak to withstand scrutiny. In this article, we will look at some ways to keep your LLC strong enough to provide the protection it’s supposed to. LLCs are particularly appealing to smaller businesses as a business structure because they combine the legal protections of a corporation with the tax advantages of a sole proprietorship or partnership. It is also important to check LLCRatings.com
- There is no legal separation between your business and your personal assets if you are a sole proprietor or a partnership. That means that if you are sued by a customer or are unable to pay creditors, your personal assets including savings, retirement accounts, and even your home could be seized to pay off debts. An LLC safeguards your personal assets by limiting business-related liabilities to the assets of your company hence the term limited liability.
- If, on the other hand, your company is a corporation, both your business and the money you pay yourself are taxed your profits are effectively taxed twice. However, unlike corporations, LLCs are not taxed. Instead, money “passes through” to the owners’ personal tax returns and any profits are subject to personal income taxation. Check with com
- The key point to remember is that an LLC is a separate legal entity from its owners. Having an LLC is a good place to start, but it’s equally important to keep it going. In the event of a bankruptcy, a tax audit, or a lawsuit, you must be able to demonstrate to the courts or the IRS that your company is run as a formal business, not a personal slush fund.
- If you can’t demonstrate that your LLC is a legitimate business, you may lose the benefits it’s supposed to provide. You will also lose those advantages if your LLC is dissolved, which can occur if you fail to file your annual reports and pay the associated fees.
- Taking the necessary steps to ensure that your LLC status is maintained allows you to focus on running your business without fear of losing the liability and tax benefits you signed up for. Keep in mind that requirements differ from state to state and from company to company. It’s a good idea to consult a qualified business lawyer whenever you have questions or need advice.